The Week Ahead: US-China tensions, SST, earnings in focus

This article first appeared in The Edge Malaysia Weekly, on August 27, 2018 - September 02, 2018.
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US-China trade tensions will continue to be in focus in Malaysia this holiday-shortened week, while further news flow on the Sales and Services Tax (SST) — such as what goods and services might be exempted from it — is expected ahead of its implementation on Sept 1.

The stock market will close Friday for the National Day holiday.

A slew of financial results for the April-June quarter will be out this week as public listed companies rush to meet the end-August release deadline.

Investors remain concerned about the trade war between the US and China after mid-level officials from both sides ended two days of trade talks last Thursday without any breakthrough. This means that their months-long spat, which has roiled global markets, is not likely to end anytime soon.

On the same day, the US imposed a 25% tariff rate on US$16 billion of Chinese goods, a move that Beijing immediately reciprocated with its own 25% tariff on a list of US goods on the same scale.

The world’s two largest economies have now slapped tariffs on each other on a combined US$100 billion worth of products since early July, and more are in the pipeline, raising concerns about their impact on global economic growth.

At home, the Dewan Negara passed five Bills last Monday that allows for the SST to be implemented on Sept 1, as planned. Finance Minister Lim Guan Eng has said that 5,443 goods and services will be exempted from the SST compared with 545 under the previous Goods and Services Tax. The SST rate has been set at 10% for sales and 6% for services.

Meanwhile, all eyes will be on the progress of the government’s hunt for fugitive businessman Low Taek Jho (Jho Low), after Malaysian police filed the first set of criminal charges against him and his father, Tan Sri Low Hock Peng, last Friday over money allegedly stolen from 1Malaysia Development Bhd.

The action will pave the way for the next move, which is to seek an extradition of the two men from wherever they are now hiding, theedgemarkets reported that day, citing legal sources. Under Malaysian law, the trial of those accused of a crime cannot proceed unless they appear in the dock for the court to take a plea.

On Thursday, Bank Negara Malaysia is expected to provide a detailed disclosure of its international reserves as at end-July.

Over in China, industrial profits data for July will be out on Monday. On Friday, its official manufacturing and non-manufacturing Purchasing Manager’s Index data for August will be out.

Factory activity in July was slightly lower than expected, with the PMI at 51.2 compared with a Reuters forecast of 51.3 based on a poll of economists. (A reading above 50 indicates expansion, while a reading below that signals contraction.)

Other important data out in Asia on Friday include India’s second quarter gross domestic product, Thailand’s July trade and South Korea’s July industrial production.

The Bank of Korea is the only major Asian central bank with a monetary policy decision this week. It is widely expected to keep its policy rate unchanged at 1.5% on Friday.

Markets in the Philippines will close on Monday for the National Heroes Day holiday.

There will be a slew of key macroeconomic data releases in the US this week. On Aug 28, there is data on July trade and on preliminary wholesale inventories, while on Aug 29, there is the second estimate of the country’s second-quarter economic growth.

According to a previous “advance” estimate released by the Bureau of Economic Analysis, the US economy grew 4.1% year on year in the second quarter, its fastest pace in almost four years.

There will likely be further news flow on the Federal Reserve Bank of Kansas City’s annual economic symposium last week at Jackson Hole, Wyoming, where US Federal Reserve chairman Jerome Powell was to have delivered a speech on Friday. Economists say the symposium is sometimes used as a platform to signal major Fed policy changes.

All eyes will also be on developments in Australia after its change of prime minister last Friday. Conservative lawmaker Scott Morrison, 50, takes over from Malcolm Turnbull after winning a three-way battle for the leadership of the Liberal party.

On the Malaysian corporate front, among the big companies set to announce their second-quarter results are CIMB Group Holdings Bhd (Aug 29), IHH Healthcare Bhd (Aug 28), AirAsia X Bhd (Aug 29) and Malaysia Airports Holdings Bhd (Aug 28). Sime Darby Plantation Bhd will announce its full-year results on Aug 30.

Companies that will hold annual general meetings include IJM Corp Bhd and IJM Plantations Bhd (Aug 27), QL Resources Bhd (Aug 28) and Pos Malaysia Bhd (Aug 29).

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